India mulls merger of BSNL, MTNL and ITI

Caroline Gabriel/Rethink Wireless
08 Apr 2011
The Indian telecom market is in turmoil amid probes into corruption in 2G auctions, and a new wave of M&A.
Vodafone has bought out joint venture partner Essar and NTT DoCoMo is increasing its stake in Tata Teleservices, though Malaysian carrier Axiata has denied it plans to sell its share in Idea Cellular, possible to South Africa's MTN.
But all these changes could be overshadowed by plans for a dramatic shake-up of the state telecoms sector, as the government looks to enhance the performance of BSNL and reawaken plans for a viable homegrown equipment business.
A government body is proposing a reorganization that would have an effect on the industry structure almost as profound as China's telco restructuring of a few years ago. The Board for Reconstruction of Public Sector Enterprises wants the two state owned operators, BSNL and MTNL, to be merged, and also combined with ITI, the state's ailing telecoms equipment maker.
"The board strongly recommends the merger of ITI Ltd with BSNL, or its takeover by the BSNL as a separate subsidiary, thereby ensuring strategic vertical integration. This should enable BSNL to combine service providing with manufacture of the products," said the Board in a note on BSNL's web site.
The proposal has an air of desperation in the face of BSNL's huge losses, MTNL's slow 3G progress (despite having early access to spectrum) and ITI's near irrelevance.
The idea of operators making their own equipment was commonplace until the 1990s, but carriers like British Telecom, AT&T and others moved away from the integrated model in order to be able to shop around for the cheapest or most innovative products - and offload massive R&D and manufacturing overheads.
Given the reputation of all three Indian state firms for inefficient management, combining them would amount to tying some very large rocks together and hoping they would float. Indeed, the very existence of the Board, which exists purely to advise financially troubled state-run companies, does not inspire confidence in the publicly owned groups in their current form.


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